Basic Vat Techniques
SUMMARY FOR NOTES
SARS TO PAYROLL
CHAPTER 2 – VAT
INTRODUCTION TO VALUE ADDED TAX (VAT)
What is VAT?
VAT stands for Value Added Tax. Value Added Tax (VAT) is levied on the supply of goods and services by vendors or it is a tax businesses charge when they supply their goods and services. We have to pay VAT on most of the things that we buy.
In September 1991, South Africa replaced its general sales tax (GST) with a consumption-type value added tax (VAT). The VAT is administered with a rebate for intermediates and investment purchases.
At the retail level, sellers are charged the statutory VAT rate (currently 14% for all commodities except gold which is zero-rated so pays no VAT) and receive a rebate for the tax revenue paid on intermediate inputs. The net payment is the statutory VAT rate applied to only the value added for that commodity. This tax collection method encourages “self-policing”— producers are more likely to purchase intermediates from sellers who can verify that they have paid the value added taxes due.
When the VAT was initially introduced, there were concerns that it could not replace the GST as a source of government revenue. In addition, a VAT may affect producers’ input choices. When the VAT is administered with rebates for intermediate inputs, there is, in effect, a subsidy for intermediate input use. Producers may substitute intermediates for primary factors (land, labor and capital), affecting the return to factors and income distribution. Another concern is that the VAT, because it is an indirect tax that works through the price system, puts a larger burden of the tax on low-income households.
VAT CONCEPTS Zero-rated items | Zero-rated items are goods or services which are taxed at a rate of 0%, e.g. milk, brown bread, maize, fruit, etc. | VAT-exempted items | These items involve services that are not subject to VAT at either the standard rate or zero rate, e.g. childcare services, educational
SARS TO PAYROLL
CHAPTER 2 – VAT
INTRODUCTION TO VALUE ADDED TAX (VAT)
What is VAT?
VAT stands for Value Added Tax. Value Added Tax (VAT) is levied on the supply of goods and services by vendors or it is a tax businesses charge when they supply their goods and services. We have to pay VAT on most of the things that we buy.
In September 1991, South Africa replaced its general sales tax (GST) with a consumption-type value added tax (VAT). The VAT is administered with a rebate for intermediates and investment purchases.
At the retail level, sellers are charged the statutory VAT rate (currently 14% for all commodities except gold which is zero-rated so pays no VAT) and receive a rebate for the tax revenue paid on intermediate inputs. The net payment is the statutory VAT rate applied to only the value added for that commodity. This tax collection method encourages “self-policing”— producers are more likely to purchase intermediates from sellers who can verify that they have paid the value added taxes due.
When the VAT was initially introduced, there were concerns that it could not replace the GST as a source of government revenue. In addition, a VAT may affect producers’ input choices. When the VAT is administered with rebates for intermediate inputs, there is, in effect, a subsidy for intermediate input use. Producers may substitute intermediates for primary factors (land, labor and capital), affecting the return to factors and income distribution. Another concern is that the VAT, because it is an indirect tax that works through the price system, puts a larger burden of the tax on low-income households.
VAT CONCEPTS Zero-rated items | Zero-rated items are goods or services which are taxed at a rate of 0%, e.g. milk, brown bread, maize, fruit, etc. | VAT-exempted items | These items involve services that are not subject to VAT at either the standard rate or zero rate, e.g. childcare services, educational